US MARKET PENETRATION BY ACQUISITION in 2018

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Market Penetration by Acquisition

Mergers & Acquisitions – Buy Side

Corporations and private equity firms foresee an acceleration of merger and acquisition (M&A) activity in 2018, particularly in terms of the size of those transactions. From a sector perspective, technology and healthcare will drive M&A activity in North America because of the U.S.’s strength in tech innovation and the aging populations in advanced economies. Further consolidation within the energy and raw materials sectors should also continue to generate transactions in the coming years.

Companies involved in M&A have been most interested in acquiring relevant technologies. This in addition to expanding customer bases in existing markets, adding to product offerings and diversifying services rank as top three strategic imperatives. M&A also helps companies improve synergy, diversify, grow, expand their products and increase supply-chain pricing power and market share.

Some factors that have made foreign direct investors (FDIs) favor the U.S. for M&A deals include the recent slow international growth, political crises & ongoing wars in certain areas of the world, along with global economic uncertainty. Despite this uncertainty (listed as a key concern in Deloitte’s 2018 M&A Trends Report), M&A is rising to the forefront. FDIs can use M&A as a tool for both smaller, strategic, niche acquisitions as well as bold transformative deals.

In PwC’s Global CEO Survey, four out of 10 CEOs said their companies are targeting the U.S. for their growth prospects. That was reflected in the 6% rise in inbound deal volume through Q1 2017. A few months later, the pace picked up, with year-over-year volume up 10% through May. This could be a sign that overseas businesses are looking to the U.S. to compensate for uncertainties in markets such as China, South Korea and Russia, where economic prospects aren’t as stable. These survey findings are consistent with other analyses, such as a UNCTAD forecast that the U.S. will be the favorite investment destination of global business through 2018, followed by China and India.

As markets adjust to ongoing political and regulatory changes, the M&A market should be buoyed by strong fundamentals and the potential for pro-business policy changes. In particular, opportunities may emerge from potential new U.S. policies, such as cash repatriation, corporate tax reform and more modest regulation.

Fears of increasing protectionism in 2016 morphed into uncertainty about policy that could affect global trade. However, despite trade barrier speculation, cross-border M&A has already been a hallmark of deal making in 2017, with a resurgence of deals between the U.S. and Western Europe. Companies are looking everywhere for pockets of growth, although the main focus has shifted back to developed markets, according to the EY 16th Global Capital Confidence Barometer (CCB).

Sluggish economic growth slowly spread out throughout the world over the past six years has made it more difficult to find the right partner for accelerating business growth. Only 1 out of every 6 investments by venture capitalists in the U.S. delivers its projected return on investment.  With such dim prospects, how can FDIs take advantage of the M&A momentum, hasten their business growth, and overcome deal barriers?

Companies get the most out of their M&A deals with proper focus, preparation and execution. There is no substitute for a well-thought-out M&A strategy and a solid execution plan to improve prospects for the completion of a successful M&A deal.

COGNEGY can help FDIs every step of the way. COGNEGY has teamed with many foreign firms to identify the right target, engage in project discussions, perform both business and legal due diligence (with trusted partners), outline business valuation, craft deals, negotiate, integrate, and accelerate growth.

Please contact Phil Jafflin with any questions you might have: phil.jafflin@cognegy.com

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Aerospace Market

Launch into the Aerospace Market in the Southeastern United States

Florida’s NASA rocket ships aren’t the only ones in the Southeast lifting off at high speeds. The aerospace industry[1] is the fastest growing industry in the region. Georgia, Alabama, Florida, Mississippi, North Carolina, South Carolina and Tennessee have collectively become an industry leader, with major firms setting up manufacturing sites all throughout the area.

These include Airbus in Mobile, AL; Gulfstream in Savannah, GA; Boeing in North Charleston, SC; Honda Jets in Greensboro, NC, and United Technologies Corp. (UTC) in Charlotte, NC, and more. NASA and the U.S. Air Force launch rockets in Cape Canaveral, Florida.

Aerospace GA

 

 

 

 

 

 

 

 

 

The graphic on the right below illustrates how aerospace exports in the South

Exports Aerospce GA

east have been outpacing overall U.S. aerospace exports, increasing by 180 percent from 2006 to 2016, 2.3 times the growth of U.S. exports. Georgia in particular has been substantially overtaking both the Southeast and U.S. overall. Georgia’s aerospace exports account for 30 percent of all aerospace exports in the Southeast, followed by Florida with 25.9 percent and South Carolina with 24.7 percent.

Foreign firms are attracted to the U.S. aerospace market because it is the largest in the world and has a skilled and hospitable workforce, extensive distribution systems, diverse offerings, and strong support at the local and national level for policy and promotion. According to a study by the U.S. Department of Commerce, aerospace exports directly and indirectly support more jobs than the export of any other commodity. Investment in the U.S. aerospace industry is facilitated by a large pool of well-trained machinists, aerospace engineers, and other highly skilled workers with experience in the aerospace industry.

Investors in the U.S. aerospace industry are supported by the Federal Aviation Administration’s (FAA) “gold standard” of aviation safety, boosting the confidence worldwide in the safety of aircraft and aircraft parts manufactured in the United States.

State Specialties

Each state has its own special advantages and contributions that strengthen the industry:

  • Georgia houses more than 800 companies in the aerospace industry, along with a business climate consistently ranked as one of the best in the country with a business-friendly tax code and other incentives. Aircraft manufacturing accounts for more than 70 percent of all employment in Georgia’s aerospace industry, followed by other air transportation support activities and aircraft engine and engine parts manufacturing with 12.2 percent and 9.2 percent, respectively.
  • Florida ranks #2 among states for aviation and aerospace establishments, with more than 2,000 companies employing 82,500 workers. These businesses export more than $5.2 billion in goods annually, making Florida a national leader in these sectors.
  • North Carolina is now second in the U.S. in aerospace growth, and hosts two of the top 10 aerospace and aviation clusters in the South. The state justifies such growth due to unique industry research advantages, 9,500+ aerospace manufacturing employees, cost advantages, and more.
  • Mississippi is home to some of the world’s most renowned names in aerospace: GE Aviation, Airbus Helicopters, Rolls-Royce and Lockheed Martin. All rely on a skilled and productive workforce, comprehensive workforce training, a supportive business environment, a strategic location, low startup and operation costs, and cutting-edge R&D.
  • Over 300 aerospace companies from more than 30 different countries have chosen Alabama, including industry giants such as Boeing, Lockheed Martin, GE Aviation, Raytheon and GKN Aerospace. Another of these giants is Airbus, which now produces its A320 Family passenger jets at a new $600 million manufacturing facility in Mobile.
  • Some of the world’s top aerospace and defense companies operate facilities in Tennessee, including Vought Industries, Beretta USA, Eaton Corp., Standard Aero Alliance, Honeywell, Barrett Firearms Manufacturing, BAE Systems Ordinance and Bell Helicopters, with more on the way.
  • The total economic impact of aerospace on South Carolina’s economy is $19 billion per year. There are approximately 400 aerospace companies in South Carolina and four aviation related military facilities. These companies and facilities combined employ more than 53,000 people. Of the 17,000 employed in the private sector, approximately 72.2 percent of employees are in manufacturing, 17.8 percent of employees are in air transportation support, and 10 percent are in air transportation.

Ideal Business Environment

Many factors are guiding aerospace firms towards the Southeast:

  • Strong economy – the Southeast is one of the nation’s most robust economies, with a GDP of $3.8 trillion in 2015, which represents nearly 21 percent of the U.S. economy as a whole
  • Growing workforce – the region accounted for 17.9% of all U.S. workers in 2012
  • Growing population – population growth in the Southeast outpaces that of the U.S. overall due to the excellent weather and economic climate, and is currently home to 25.75% of the U.S. population
  • Well-educated population – the Southeast has some of the nation’s top colleges and universities
  • Low unionization – unionization rates in the Southeast are low and continue to decline
  • Low cost of doing business – for major cost measures, most Southeastern states are below the national average

Proximity to numerous space launch facilities in the Southeast helps aerospace firms lower the cost of doing business in logistics, manufacturing and R&D, while positioning them to capitalize on the emerging space market.

The Southeast can present a lucrative opportunity for any aeronautical company looking to invest. But given your company’s particular needs, what would be the ideal market entry strategy? Mergers and acquisitions? Setting up a U.S.-based sales office?

Each heterogeneous region of the United States presents its own unique advantages and challenges. Foreign firms need a partner – an expert in the region’s aerospace business environment – who they can count on. Proper planning and a well-researched approach can put companies on the right flight path for growth and profitability.

Please contact COGNEGY with any questions you might have: phil.jafflin@cognegy.com

[1] The industry includes aerospace products and parts manufacturing as well as other support activities for air transportation.

Shift Gears Towards the Automotive Industry in the Southeastern United States

When thinking of investing in the U.S. automotive industry, thoughts often lean towards the Detroit, Michigan area. Check again – the rapidly expanding Southeastern Automotive Corridor has become the new epicenter of automotive manufacturing growth in the United States, abundant with strong networks and growth potential.

Georgia, Alabama, Florida, Mississippi, North Carolina, South Carolina and Tennessee have collectively become a key industry driver for the U.S. automotive market – one of the largest in the world. This comes as no surprise as the Southeast is home to both 25.4% of the U.S. population and one of the nation’s most robust economies, with a GDP of $2.4 trillion – representing nearly 15.5 percent of the U.S. economy as a whole.

More than 1,060 automotive firms are located throughout the seven states. The region hosts 16 major auto, truck, and bus assembly plants for leading companies such as Hyundai, General Motors, BMW, Honda, Kia, Volkswagen, Toyota and Blue Bird. Mercedes-Benz and Porsche both maintain North American headquarters in Atlanta, GA, and Nissan holds theirs in Franklin, TN.

auto-_-se

Map and Research by Georgia Power

Business Facilities magazine named Tennessee the top state in its Automotive Manufacturing Strength ranking for five of the past six years. The Nissan plant in Smyrna, TN is the most productive plant in North America, producing 633,347 automobiles in 2015. Southeastern states exported nearly $28 billion in motor vehicle, motor vehicle bodies and trailers and motor vehicle parts in 2012, accounting for 62 percent of total transportation equipment exports. Consumer demand is on the rise – new vehicle registrations in the area are expected to grow from around 3 million to 3.1 million between 2016-2020.

The Southeast’s sound economy, stable and growing workforce, low unionization, right-to-work status and low costs of doing business provide additional incentives for automotive leaders to drive towards the region. The Southeast can present a lucrative opportunity for any automotive company looking to invest. But what is the best approach? With the right partner to help plan the ideal market entry strategy through M&A or else, investing in the Southeastern automotive sector can put firms on the right track for growth and profitability.

Please contact COGNEGY  with any questions you might have or email us at phil.jafflin@cognegy.com

 

Value Proposition and Trust

 

This article is about the difference between perception and reality, between what you think about the US market and what the US market thinks about you.

In other words, we are having a conversation about the reasons why Americans might hesitate to buy your product, even if it is clearly a superior one. It is about what needs to be done to bring them over the edge, and get them to sign an order, a distribution agreement, or a letter of intent.

The American market is abundantly supplied by US and established foreign producers, offering just about everything: quality, diversity, service, information and competitive prices.

Because of its size and high degree of sophistication and standardization, the US market attracts newcomers, American and foreigners, every day.

In other words, it is not an easy market to penetrate.

Thankfully, Europeans usually offer products with a great value proposition; products they think will be hard for Americans to resist. 

This may be true, but a great value proposition doesn’t tell the whole story.

Americans are often labeled as chauvinistic when they appear to prefer “Made in USA” products rather than the “superior solution” Europeans are offering.

In reality, US potential partners and customers are usually open to foreign-made products, as long as they can get something substantial (money, status…) out of them. Their first question will be: What’s in it for me?

But if this first question is easy to answer (great value proposition!), it is immediately followed by a number of worries, questions that may not be expressed, and boil down to trust. To his colleagues, your American contact may be saying something like: “Their product looks great, but can we trust these guys?” 

 

Let’s go over a few of these worries.

How long have they been doing business in this country?

Even if you export to 50 different countries from Lithuania to Malaysia, what your US partners are really concerned with is the South, or MidWest, or whichever region the market is. Worries: What is their local presence? Do they have US references? What have they already achieved in the US? Do they know the competition? Are they member of our industry association?

How important is the US market for them?

This question really means: How long will they stay here? No one likes to invest time and resources in a project that might be abandoned as soon as the Euro starts climbing again. If they have a feeling that you are over-optimistic or unprepared, they might worry about the unpleasant surprises you will face. Worries: How much funding have they set aside to sustain their market entry? What is their expected pay-back period? Who will manage the US operation? How profitable could their US operation be? How much personnel are they hiring?

Where is their US operation located?

Even when your market penetration strategy is based on a well-structured agreement with a US distributor, the frequency of your presence in the United States will often be critical to your success. European mid-sized companies have a tendency to be understaffed, especially the successful fast-growing ones. Travel time to, from and inside the USA takes a toll on overworked management. WorriesWho will take care of sales rep training and motivation programs? How and when will they visit our 178 points of sale? Will they attend our quarterly meetings? Who will prepare the next trade fair?

What are their marketing tools?

Even if English language literature is available, it may have to be put to the test. US terminology and spelling are considerably different from anything you have seen in Europe. Americans are not used to brochures in three different languages, and regular references to European standards or units will raise eyebrows. Poor English syntax or literal translations from a European idiom will make Americans smile, but are not conducive to a strong relationship. Worries: What do they mean with “spanner” and “gearbox”? Will they start using a US marketing agent? How good is their website SEO? Do they have a speaker for the upcoming conference?

Their technology looks great. How about their after-sales service?

Americans will hardly be reassured when told that “our technicians speak English”. They want to know where the service team is located, how long it will take them to fix a breakdown or replace critical parts. Your US partners don’t want to call and leave a voice message to a recorder located 6 or 9 time zones away. WorriesHow many technicians do they have on the east coast? How were they trained? Do they also work for other companies? Where do they store spare parts?

Finally, the entire trust issue also depends on whether a bond is created between you and your American partner, between your people and theirs. This is chemistry. Inviting them to visit your company in Europe, or spending time visiting their offices and plant will go a long way.

 

All the above worries will have to be addressed, whether they have been expressed or not.

A market analysis, strategy, marketing and financial plan professionally prepared by US-based COGNEGY is likely to inspire the confidence that your US partners are seeking. You will have all the solutions ready to answer their worries. This is what we have done for over 30 mid-sized European companies in the last 30 months.

After all, if your company has spent decades to develop, produce and market great products all over the world, it would be a shame to stumble on America’s shores because of worries that have little to do with these products. 

Coconuts or Peaches…

When in Belgium while on a business trip, I was interviewed by Benny Debruyne of Trends Magazine – probably the business weekly in Belgium – on the pitfalls of ‘doing business’ in the United States. The product of this conversation became the article that was published a couple of days ago.

Here is the link to the full article – ‘Europeanen zijn als kokosnoten, Amerikanen als perziken’ – (‘Europeans are like coconuts, Americans like peaches’). For the non-Dutch speakers among our readership –  the author heard me talk about many things, but distilled these 5 pitfalls:

  1. send the wrong scout
  2. consider the US as one single market
  3. underestimate the legal side
  4. move too eagerly
  5. be too modest

About the title, the quote is not mine – I read it somewhere, but cannot recall who actually said it first. It stuck because it describes both cultures perfectly, Europeans are like coconuts: hard on the outside, but soft on the inside. Americans are like peaches: very open and accessible, but can be a hard nut to crack!

 

Are changes to Visa Waiver Program affecting you?

If you traveled to Syria, Sudan, Iraq or Iran, the USA will now require you to apply for a visa, instead of allowing you to enjoy the visa waiver program to enter the United States. This major change in policy will affect quite a number of business travelers.

Like most Western Europeans, you have most probably traveled to the United States of America enjoying the simplicity of the Visa Waiver Program that is in place with some 35+ countries, including Belgium, The Netherlands and France. Some major changes were announced on January 21st, that could affect your future travel plans.

Recently, the press has covered instances of dual national citizens who have been refused entry to the US. The story of a dual-national British journalist, on her way to visit relatives in the United States, is a perfect example. Read here – bbc journalist.

Probably less known is a second category of travelers directly hit by the changes implemented under the ‘Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015’. Nationals of countries that enjoy the visa waiver program, and have traveled to the aforementioned countries after March 1st, 2011, are affected. A press release from the Department of Homeland Security states that:

Under the Act, travelers in the following categories are no longer eligible to travel or be admitted to the United States under the Visa Waiver Program (VWP):

  • Nationals of VWP countries who have traveled to or been present in Iran, Iraq, Sudan, or Syria on or after March 1, 2011 (with limited exceptions for travel for diplomatic or military purposes in the service of a VWP country).
  • Nationals of VWP countries who are also nationals of Iran, Iraq, Sudan, or Syria.”

Here is the link to the press release: http://www.dhs.gov/news/2016/01/21/united-states-begins-implementation-changes-visa-waiver-program

The same press release reassures that visa requests can be processed on an expedited basis for individuals who require a visa for “urgent business travel”. Furthermore, the release clarifies that:

“…any traveler who receives notification that they are no longer eligible to travel under the VWP are still eligible to travel to the United States with a valid nonimmigrant visa issued by a U.S. embassy or consulate. Such travelers will be required to appear for an interview and obtain a visa in their passports at a U.S. embassy or consulate before traveling to the United States…”

Forewarned is forearmed. Check your travel of the past 5 years, because coming to the US for business might now require a little more effort on your part.

If you have questions you can always contact me (although I am not a lawyer), or your favorite immigration lawyer.

 

Discover the hidden faces of the USA

You might even be surprised by Charleroi, Pennsylvania or come across Antwerp, Ohio, small towns offering an off-the-beaten-path familiarity to the Belgian tourist tired of the Yellowstone and Times Square.

Some 200,000 Belgians emigrated to this vast country since 1820 and left their mark; farmers, miners, crafts people, and skilled workers from the Walloon glass industry or the Flemish textile mills.

Just like all other settler groups, they stuck together at first, and so gave their region a unique character, a culture and appearance as different from other US regions as the Balkans are from Scandinavia.

Look at the State of Virginia, a member of the Union since 1787, a slave state then, known the world over for its prime tobacco, the proud home of the earliest (1607) settlers and of George Washington.

How could this state even remotely resemble Oregon, a northwestern state four time zones away, covered by huge forests, shaped by the imposing Rocky Mountains, producing some of the best wines I have ever tasted, and under British authority up to 1848?

While most people familiar with the vast expanse of the United States understand its geographic diversity (landscape and climate), they find it very comfortable to deal with just one currency, one language, one cell phone network, credit cards welcome everywhere and familiar benchmarks (from Burger King to Starbucks to Hampton Inn) in the most remote places.

For the Belgian entrepreneur, however, seeking to emulate the spirit of the earlier settlers, the hidden diversity of the various American states often comes as a surprise.

us states

50 Shades of USA

For starters, every single state, has been crafted by its history, natural resources and climate. The latest one, Hawaii, only joined the Union in 1959, 172 years after Delaware, the first state to ratify the Constitution.

Next, every single US state has a republican (with a small “r”) government, meaning one with three branches of government (executive, legislative and judicial). In all 50 states but one (Nebraska), the legislative branch has two chambers (House and Senate). Importantly, all states handle their own affairs, except for those delegated to the federal government.

In other words, if states reluctantly tolerate the federal government, they still influence a wide range of affairs: education, health insurance, most of the laws, economic development, welfare and employment rules, financial institutions, environment, energy, consumer protection, housing, agriculture…

Shaping the health, welfare and education of their people, steering the economy, stimulating or hindering businesses and in countless other ways, the 50 US states have achieved success, failure, and everything in between.

To illustrate how every state tells a story quite different from the America stereotypes prevailing abroad, 19 states have abolished the death penalty, with more to come. The life expectancy at birth is of 86.2 years in Minnesota, and 74.1 in Montana, a full 12 years less. Median household income is $70,004 in Maryland, $36,919 in Mississippi and on average, $50,502 for the entire United States.

Even more important than the present day disparities, in every American state and region things are changing fast and in different directions. Housing prices are recovering in a spectacular way in Florida, Arizona, Nevada… after the real estate meltdown of 2008. Employment in 2014 grew over 3% in states like Utah, Texas, Florida and Nevada, and more than 5% in North Dakota.

Some states see their population shrink through aging and emigration, while others attract certain categories of people: senior citizens in Florida and Arizona, young workers in North Dakota and Texas, high tech specialists in California or Colorado.

Oklahoma’s economy grew 4.2% in 2014, while Wyoming’s expansion was 7.6%.

If average weekly wages remain stuck at a low $794 in Montana and $826 in Maine, workers make $1,321 in New York and $1,315 in Massachusetts.

Why is this important to the Belgian entrepreneur?

Whether you are looking at a first-time US market penetration, the expansion and consolidation of your US “beachhead”, investing in logistics or production assets, setting up a joint-venture or the acquisition of a US company, your decisions need to be based on knowledge, not on fortuitous encounters.

Even if people or potential partners you have met coincidentally in the United States may help, your best decisions are usually made when you have a choice, when you can line up several options, and are able to choose the best ones among them.

Some distribution channels cater to the suburban affluent, others to progressive big city environmentalists.

In some areas, low wages could mean very low productivity, while high wages might reflect a crucial shortage of qualified workers.

In some regions your family or employees will thrive, in others a harsh winter will shut down your business for weeks.

Virginia, North Carolina and Georgia, all on the east coast, are among the top 4 US states ranking best in “regulatory environment”, a crucial component of the business friendly climate you would like to operate in. Do you really want to go through California’s jungle of earthquake-related rules and specifications, easily adding 20% to the cost of your greenfield production plant?

New York, arguably the most expensive US city, combines high labor costs and powerful unions, an unwelcome familiarity among a wealth of more attractive features.

Decisions, decisions… they are not that difficult to make once you possess all the relevant information.